Not Running Against Wall St.

Eric R. Dinallo, the former right-hand man of New York’s attorney general, running for the office himself, has gained some unexpected backers.

DANNY HAKIM

Eric R. Dinallo was once one of Eliot Spitzer’s right-hand men.

He is credited with dusting off the Martin Act, the sweeping New York state securities law, and devising a way for Mr. Spitzer to use it to prosecute Wall Street corruption and make a national name as state attorney general.

And it was Mr. Dinallo, as the head of the investor protection bureau in the attorney general’s office, who oversaw the case against Henry Blodget and other securities analysts who hyped stocks to curry favor with their firms’ investment banking clients.

So one might expect now that he is running for attorney general himself, Mr. Dinallo, 46, would take up the role as scourge of Wall Street. But along with the obvious problem — being one of Spitzer’s men does not have the cachet it once did — Mr. Dinallo does not want to be mistaken for the second coming of Mr. Spitzer.

He envisions a less combative relationship with Wall Street and thinks that systemic reforms are best handled in Washington. Since declaring his candidacy in August, Mr. Dinallo has won support from some of Mr. Spitzer’s most fervent foes, including Richard A. Grasso, the former head of the New York Stock Exchange, and Kenneth G. Langone, a founder of Home Depot who sat on the stock exchange’s board. He even expresses reservations about his old boss’s case against Mr. Grasso over his lofty pay.

“It would be easy in these times to only rail against the evils that have been, but that would sweep too broadly and do real harm,” said Mr. Dinallo, a Democrat. “We don’t want to kill Wall Street, but we do want to learn from what happened.”

Of course, the whole notion of a Democrat running for New York’s attorney general next year is complicated, because Andrew M. Cuomo, a highly popular Democrat, already holds the job. Mr. Dinallo is assuming that Mr. Cuomo will run for governor next year to supplant a faltering Gov. David A. Paterson.

He says he will abort his campaign if Mr. Cuomo ultimately runs again for attorney general, but in New York political circles a gubernatorial bid is viewed as such a foregone conclusion that more than half a dozen potential candidates are considering following Mr. Dinallo into the race. Mr. Cuomo has been evasive on the topic, even as speculation has intensified since it became known that the White House wanted Mr. Paterson to drop out.

A changing of the guard would be closely watched. Under Mr. Spitzer and then Mr. Cuomo, the New York attorney general’s office has often picked up where the Securities and Exchange Commission did not venture.

Few regulators were more despised than Mr. Spitzer — there were cheers on the New York Stock Exchange when the prostitution scandal broke last year, abruptly ending Mr. Spitzer’s term as governor. Mr. Cuomo has had his share of fights, recently battling Bank of America over disclosure about the Merrill Lynch acquisition and clashing with Charles Schwab over how it sold auction-rate securities.

But there is a division among state officials over how vigorously New York’s attorney general should batter Wall Street. On the one hand, there has been outrage across the country at the enormous bill for the rescue of Wall Street, even as tales of greed, excess and Ponzi schemes have proliferated. On the other hand, New York depends on Wall Street for about a fifth of the state’s revenue, and its latest troubles have depleted the state’s coffers.

Mr. Dinallo has been both enforcer and insider. Intense, caffeinated and lawyerly, he grew up in Manhattan until the age of 9, when his family moved to Santa Monica, Calif. His father, Greg, was a writer on TV shows like “Quincy M.E.” and “Knight Rider” and even wrote an episode involving Bigfoot for “The Six Million Dollar Man.”

Mr. Dinallo didn’t take to California — “I felt like a 45 record being played at 33” — and returned east for school: a philosophy degree at Vassar, a master’s degree in public policy from Duke and a law degree from New York University. He later worked for the Manhattan district attorney, Robert M. Morgenthau, prosecuting boiler rooms and bucket shops.

After more than four years of working in Mr. Spitzer’s office of the attorney general, he left in 2003 to work as a corporate lawyer at Morgan Stanley. When Mr. Spitzer was elected governor in 2006, Mr. Dinallo rejoined his old boss, serving as New York’s insurance commissioner until last July and leading the state’s role in the rescue of the American International Group, the troubled insurer. He now teaches ethics to M.B.A. students at the Stern School of Business at New York University.

Mr. Dinallo’s work as insurance commissioner won praise from the nation’s best-known insurance executive, Warren E. Buffett, who said in an interview, “I’d definitely give him an A for his performance.” Mr. Dinallo enlisted Mr. Buffett’s help last year to stave off a crisis in the small group of insurers that guarantee hundreds of billions of dollars of bonds sold by states and municipalities.

“Some years, the insurance commissioner can relax and play golf and do other things, but this was not a period like that,” Mr. Buffett said, adding that Mr. Dinallo “worked with all of the parties in an intelligent way to minimize something that could have been quite disruptive to the system, and he was the main player of the 50 states. He jumped in and took charge in a way that minimized the damage.”

Mr. Dinallo’s campaign pitch is that he knows the terrain of the office well, having had a front-row seat during its reinvention, but that he intends to put his own stamp on the job. He would like to reallocate resources to “focus on consumer — and investor-based cases that go to people’s everyday financial lives — their phone bills, their credits cards, their mortgages,” he said.

That assumes Washington will take an assertive role in reshaping regulations.

“No one thinks the A.G.’s office is supposed to be the primary regulator for the financial industry in this country, but there are times when it has had to be in that role,” he said. “I actually think the S.E.C. and Mary Schapiro have been very active and have posted quite a good number of early actions, but that’s not the issue.”

The issue, he said, is that Congress needs to undo the damage from two pieces of legislation: the Gramm-Leach-Bliley Act of 1999, which repealed the Glass-Steagall Act and allowed for mergers of traditional banks with investment banks, and the Commodity Future Modernization Act in 2000, which deregulated the derivatives market.

In the stock analysts case, Mr. Grasso worked with Mr. Dinallo and Mr. Spitzer to negotiate a settlement: 10 major firms paid a total of $1.4 billion and avoided criminal prosecution.

“Eric’s got the right experience base, a terrific balance of regulatory approach and a businessman’s approach,” said Mr. Grasso, whose relations with Mr. Spitzer soured after Mr. Dinallo left the office. In 2004, Mr. Spitzer embarked on a suit to recoup Mr. Grasso’s $187.5 million pay package, a suit ultimately abandoned by his successor after several adverse court rulings.

The Grasso pay case, Mr. Dinallo said, “does not have the hallmarks” of a consumer-based case. “That’s pretty much all I would say about it now.”

Mr. Langone, a fervid Spitzer critic who served on the stock exchange’s compensation committee, said, “Dinallo is a good guy and I have great hope that he understands the significance of a pro-business attitude.”

Few others have so thorough a grounding in the operations of the attorney general’s office as Mr. Dinallo.

“My relationship with Wall Street has evolved,” he said. “Initially, people thought of me as a very aggressive attacker of Wall Street because of the research analyst cases mostly, but then it evolved into someone who was trying to help regulate the markets and get us through the worst financial crisis of our lifetime.”

“We have to reform Wall Street,” he added, “but not destroy it.”

Mr. Grasso, at least, is sold.

“Maybe he’ll want Eliot and I to do a joint commercial for him,” he said, and then he began a mock TV voiceover — “The one thing they agree on.”

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